Investing

IBM's CEO Rometty Failed To Deliver Again In 2016

Douglas A. McIntyre

Published: January 2, 2017 9:00 am

Last Updated: January 12, 2020 4:14 pm

The best news IBM (NYSE: IBM) investors got in 2016 is that the stock was up 20%. That did not offset the fact that the tech company made little progress financially, and that its heavily promoted cloud computing initiatives still lag the public corporations which continue to dominate the sector. CEO Virginia Marie “Ginni” Rometty’s turnaround has not materialized

IBM’s share price improvement in 2016 barely wiped out its poor performance over the last two years, and the stock is still down over a five-year period. Over the course of two years, the stock is up 2% to $166, against an improvement of  almost 9% in the S&P 500. Over the course of five years, the stock is down 8% while the S&P 500 is up 73%. For the five years, cloud industry leader Amazon’s (NASDAQ: AMZN) share are up 318%, while another sector leader, Microsoft’s (NASDAQ: MSFT) are up 123%.

IBM’s revenue remained in reverse through the first three quarters, a fact management has rarely acknowledge. For the first nine months of 2016, revenue fell to $58.1 billion from $59.7 billion in the same period a year earlier. Net income fell to $7.4 billion from $8.7 billion. IBM is highly likely to have another full year of falling revenue. In 2015, IBM’s revenue was $81.7 billion, down from $107 billion in 2012.

IBM’s move into cloud and analytics has yielded only modest success. Most of the percent improvements in the third quarter were small:

Third-quarter revenues from the company’s strategic imperatives — cloud, analytics, mobility and security — increased 16 percent year to year (up 15 percent adjusting for currency). Cloud revenues (public, private and hybrid) for the quarter increased 44 percent (up 42 percent adjusting for currency). Cloud revenue over the trailing 12 months was $12.7 billion. The annual run rate for cloud as-a-Service revenue — a subset of total cloud revenue — increased to $7.5 billion from $4.5 billion in the third quarter of 2015. Revenues from analytics increased 15 percent (up 14 percent adjusting for currency). Revenues from mobile increased 19 percent and revenues from security increased 11 percent.

IBM will need to do much better than 16% to keep pace with the industry.

Research shows, depending on the source, that IBM trails Amazon, Microsoft, and Alphabet’s (NASDAQ: GOOG) in cloud service market share. In some studies, IBM is slightly ahead of Google. An Synergy Research Group report released in August showed IBM in third place among the four. However, its growth rate year over year for the second quarter was 57% compared to Microsoft’s 100% and Google’s 162%

IBM’s shares are down so much over the last five years that it is nearly impossible it can post positive returns compared to the S&P 500 for future five-year measurements. Its cloud business may be a larger and increased part of its overall revenue, but it is not nearly enough, nor is it growing fast enough, to pull the company out of a long period of awful performance